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China auto production see loss of 5% to 8% in first two months due to chip shortage

Chip shortage has caused a production loss of 5% to 8% in the first two months of this year in China, said Li Shaohua, deputy secretary general of the China Association of Automobile Manufacturers (CAAM).

Many automakers have decided to suspend production due to chip crunch. Last week, Chinese EV startup NIO announced its decision to halt the vehicle production in Hefei-based JAC-NIO plan for five working days from March 29,2021, because of chip shortage.

In the short term, the shortage of automotive chips results from the imbalance between chip supply and market demand, which cannot be solved by administrative measures, the official added. In the medium and long term, the problem may hit the industry by the throat so much more efforts are needed to maintain the stability of the supply chain.

Currently, automakers are trying to eliminate or minimize the impact of chip shortage. Mr. Li expects the imbalance will last in the next 6 months, even 9 months. And the industry may start to restore the balance from the third quarter. In the first half of the year, auto production may face great pressure due to the constraint over manufacturing before the situation will be alleviated in the second half of the year.

Roy Lu, Director of Gasgoo Auto Research Institute, also thinks that chip shortage will last 2 or 3 quarters. Along with other limitations, like price rise in raw materials, China’s passenger vehicle segment will see a gap of 300,000 vehicles between demand and supply this year. Mr. Lu expects the passenger vehicle sales of China will be up 5.6% to 21.3 million units, but the market demand may be up to 21.6 million units.

In the first quarter, passenger vehicle sales in China are expected to see significant increase while the other three quarters may have decrease. But the overall annual sales will be definitely higher compared with last year, and the output and sales may be even at the same level as 2019.